A New Approach to Reducing Payments Made to Hospitals with High Complication Rates

By Fuller, Richard L.; McCullough, Elizabeth C. et al. | Inquiry, Spring 2011 | Go to article overview

A New Approach to Reducing Payments Made to Hospitals with High Complication Rates


Fuller, Richard L., McCullough, Elizabeth C., Averill, Richard F., Inquiry


This article proposes a redesign o J the Medicare inpatient prospective payment system to reduce payments made to hospitals with high complication rates. We compute risk-adjusted, expected complication rates for hospitals and compare them to actual complication rates in order to determine the number of excess complications. Hospital payment reductions then are computed based on the number of excess complications in a hospital. Medicare hospital payment could be reduced by approximately 8% ($8.5 billion) if hospitals were held to a "best practice" standard and if payments made for excess complications were eliminated.

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The Deficit Reduction Act of 2005 (DRA) required Medicare to eliminate hospital payments resulting from certain inpatient complications, referred to as hospital-acquired conditions (HACs). Its passage established a pay-for-performance model that is based upon an outcome of care as opposed to a process of care. The Centers for Medicare and Medicaid Services (CMS) defined 11 types of complications as HACs for fiscal year (FY) 2009. These HACs are excluded from Medicare severity adjusted diagnosis-related groups (MS-DRGs) during assignment, thereby eliminating any payment increase associated with an HAC.

Excluding every occurrence of an HAC from MS-DRG assignment implies that HACs are always preventable. Such a strict standard severely limits the number of post-admission complications that can be considered HACs. Indeed, CMS has estimated that HACs impact only .017% ($20 million) of Medicare inpatient prospective payment system (IPPS) payments (CMS 2008). As a result of this strict standard, high-volume post-admission complications such as pneumonia and septicemia are not included in post-admission complications considered HACs. The HAC policy is further restricted by failing to recognize the link between patient susceptibility to an HAC and patient severity of illness at the time of admission. Taken together, these issues ensure that HAC policy is limited to those complications that are virtually always preventable. No new complications were added to the HAC list in FY2010.

As we demonstrate, including complications that are not always preventable, such as pneumonia and septicemia, would expand the number of discharges that might be considered as receiving payment for HACs to more than 10% of all discharges. A fundamental change in HAC payment policy therefore is necessary to broaden the quality agenda to address the spectrum of preventable hospital complications that fall outside current policy.

The Medicare Payment Advisory Commission (MedPAC) has proposed a readmission payment policy that would "reduce payments to hospitals with relatively high readmission rates" (MedPAC 2008). The Patient Protection and Affordable Care Act (PPACA) of 2010 (P.L. 111-148) requires CMS to begin reducing IPPS payments in 2012 to hospitals with high readmission rates. This payment approach for readmissions is analogous to that required for complications. Clearly, most complications are not always preventable. Thus, an HAC policy that determines payment reductions based upon a hospital's excess number of complications--as determined by comparing a hospital's actual complication rate to its risk-adjusted complication rate (i.e., expected complication rate) avoids requiring a direct link between the payment reduction and the absolute preventability of a complication for an individual patient. The use of a risk-adjusted threshold, over which a complication rate would be deemed in excess, would replace a mentality of "this should never happen" with a more realistic attitude--"this has happened too often"--and thus sidestep the argument as to whether an individual has received low-quality care.

The PPACA establishes ambitious cost containment and quality improvement goals while expanding access to the uninsured. This article demonstrates that a substantial portion of current payments to hospitals is the result of costs incurred by additional care necessary to treat patients who experience post-admission complications. …

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